The use or threat of violence or other criminal means to harm the physical person, reputation, or property of any person;

The use of obscenities, insults, or profane language which amount to a criminal act or offense under applicable laws;

Disclosure of the names of credit cardholders who allegedly refuse to pay debts;

Threat to take any action that cannot legally be taken;

Communicating or threat to communicate to any person credit information which is known to be false, including failure to communicate that a debt is being disputed;

Any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a cardholder; and

Making contact at unreasonable/inconvenient times or hours which shall be defined as contact before 6:00 A.M. or after 10:00 P.M., unless the account is past due for more than sixty (60) days or the cardholder has given express permission or said times are the only reasonable or convenient opportunities for contact.

If you are a school principal or department head and you receive a telephone call from collection agents about your teacher’s alleged delinquency, tell them that (1) they are violating the BSP regulation, and (2) you will encourage the teacher to file a complaint against them for unfair collection practices.

If you are the card holder and you were verbally abused by the card company’s staff or its collecting agent, you should file a complaint with the BSP’s Financial Consumer Affairs Group.

Section 4 of this circular released on December 15, 2010 amended the Manual of Regulations of Banks (Subsection X320.14) and MORNBFI, (Subsections 4320Q.14 and 4301N.14). The circular applies to all credit operations of banks and other BSP-supervised financial institutions to better protect all financial consumers, including credit card holders.

Sections 3 and 4 of the circular require credit card companies to:

[1] notify the card holder in writing of the endorsement of the collection to an agency at least seven days before the actual endorsement;

[2] give the defaulting credit card holder the name of the agent assigned to the account once they have endorsed the collection to a third-party;

[3] change all disclosure documents and marketing materials so that they are printed in plain language and in bold black letters against a white background using the Arial font and a minimum 12 point font size.

These new requirements protect the credit card holders:

by giving them enough time to consider what actions to take,

from being harassed by an unscrupulous collection agent who might use aliases or pseudonyms in order to avoid the sanctions for using unfair practices; and

by providing them with easily understood documents from the credit card companies.

Sanctions for credit card companies or their collection agents

The sanctions for unfair collection practices under Section 6 of the circular are:

First offense: Reprimand for the directors/officers responsible for the violation.

Second offense: Disqualification of the bank concerned from the credit facilities of the BSP except as may be allowed under Section 84 of R.A. No. 7653 (“New Central Bank Act”).

Subsequent offenses:

Prohibition on the bank concerned from the extension of additional credit accommodation against personal security; and

Practical and legal problems with BSP Circular No. 702, Series of 2010

[1]Shrewd and unscrupulous collection agents won’t use their office phone to call up the card holder or the school principal. Having caller ID won’t matter then. The agents can also say that it wasn't them who called up.

[2]Section 4 provides that the credit card company must notify the card holder in writing of the endorsement of the collection to an agency at least seven days before the actual endorsement. Does it mean sending the written notice by ordinary mail, registered mail, or personal service on the card holder? To prevent any circumvention or confusion, the circular should have provided instead that the notification must be made by registered mail at least seven days before the actual endorsement. Or, to really provide protection to the card holder, the circular should have required sending the notice by express registered mail.

[3]Section 6 states that “violations shall be subject to any or all of the following sanctions depending upon their severity”. The phrase “any or all of the following sanctions” is legally incorrect since the circular provides that the sanctions are to be imposed on a successive basis (first offense, second offense, subsequent offense). For example, the sanction of “Prohibition on the bank concerned from the extension of additional credit accommodation against personal security” cannot be imposed if the violation is only a first offense.

The phrase “depending on their severity” is a misplaced modifier. Does “depending on their severity” refer to the sanctions or to the violations? If the phrase refers to the violations, then the sentence should be edited to read “Depending on their severity, violations shall be subject to any or all of the following sanctions”.

Also, the phrase “depending upon their severity” creates a legal problem. Does it mean, for example, that “making contact at unreasonable/inconvenient times or hours” less severe than the “use or threat of violence or other criminal means to harm the physical person, reputation, or property of any person”?

Consider this situation: A credit card company has committed a third offense of unfair collection practice. The penalty prescribed by the circular is “Prohibition on the bank concerned from the extension of additional credit accommodation against personal security”. But if the violation, for example, is the less severe “making contact at unreasonable/inconvenient times or hours”, does this mean the BSP has the discretion to impose the lighter penalty of reprimand even if it is already a third offense?

[4] Section 3 of the circular requires that the table of fees, penalties and interest rates, and reminder to the cardholder in disclosure documents and marketing materials must be “printed in plain language and in bold black letters against a white background using the Arial font and a minimum 12 point font size”. But aside from the required typography, the circular does not discuss what “plain language” is or provide guidelines for the credit card companies to follow. (The circular itself is not written in plain language; I have posted my Plain Language before and after comparisons of this circular.)

Note: In the Flesch ease of reading scale, the higher the score, the more understandable the text is. A score between 30 to 40 means a text is “very difficult” to understand; between 40 to 50 (“difficult”); between 50 to 60 (“fairly difficult”); between 60 to 70 (“standard”); and between 70 to 80 (“fairly easy”). You can use MS Word’s Spelling and Grammar tool to check the Flesch readability score of any document.

The only BSP document with a description of “plain language” is MORB Volume 2, Appendix 13 (page 229). The description isn’t from the BSP but from a Securities and Exchange Commission document titled “New Rules on the Registration of Long-Term Commercial Papers”. In the section on “Sales and Marketing Guidelines for Derivatives”, the SEC states:

For non-sophisticated clients, a bank should adopt a suitability statement explaining simply and clearly why the product offered is viewed suitable, considering the client’s needs and preferences. To ensure the statement will be effective, a bank should consider the following features:

Simple and plain language: when technical terms need to be incorporated, they should be explained if the client is unlikely to understand their meaning; and

Concise and clear messages: lengthy explanations and extensive statements are likely to reduce the effectiveness of the statement and make the client less likely to read the statement properly.

But this description is so lacking in detail; it is also merely a recommendation. What “simple and plain language” is varies from person to person, and Circular No. 702 does not provide a way of measuring if the credit card companies are complying with the plain language requirement. What’s needed is an objective criterion of what constitutes “plain language” in order to protect the card holders.

We can learn from the experience of US states like Colorado, Nevada, Montana, New Mexico, Nebraska, North Carolina, New Jersey, and Rhode Island. These states require that insurance policies (auto, life, health) and legal documents in general must have a minimum Flesch reading ease test score of 50. Colorado laws on the use of plain language are:

Beginning in August 2010, Rhode Island requires for all health insurance policies a Flesch reading ease test score of 65, the highest in the US.

Other US laws that provide subjective and objective criteria to ensure that consumers are protected are:

Connecticut Plain Language Law (Conn. Gen. Stat. § 42-152, promulgated in 1980) mandates that every consumer contract entered into after June 30, 1980, must be written in plain language. A contract is written plainly if it meets either the plain language test (subsection b) or an alternative objective test (subsection c).

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Color or black and white?

I took these pictures when I was a journalism teacher and yearbook adviser in Rizal High School in Pasig City, Metro Manila, Philippines from 1984 to 1995. Rizal High School was once credited in the Guinness Book of World Records as the world’s largest high school. Hello to all Rizalians!

Getting married? Take a look at what “covenant marriage” is all about

“Marriage is a covenant between a man and a woman who agree to live together as husband and wife for as long as they both live. We have chosen each other carefully and have received premarital counseling on the nature, purposes and responsibilities of marriage. We understand that a covenant marriage is for life.”